Archive for March, 2008
How to Kill Your Deal Waiting on the Bank
March 27th, 2008 categories: Real Estate News, Seller Financing
Trying to get a loan funded can be incredibly frustrating these days. Are we really at the mercy of the lending institutions? Are there other ways to get escrow closed? With short sales we do need cash or cash-to-new-loan to close, but with all other transactions, we don’t have to wait on the banks!
As I write, we are two months past close of escrow (COE) on one of my short sale listings. This is not good news for any transaction. It’s catastrophic once you have short sale approval from the bank, and you only have a limited time to close.
The buyer, who provided an approval letter, and even proof of funds, is now on his 4th lender to try and get the loan pushed through. Every time we thought we were ready to order docs, the lender would come up with another condition that needed to be met, or the program just happened to evaporate completely overnight.
I sort of imagine the underwriters sitting in front of a pile of fortune cookies. A loan application floats across their desk, they look at it, hold it reverently in their lap for a minute . . . their eyes roll back, drums beat softly in the distance, an arcane chant begins to form across their lips and they reach for a cookie. With eyes slightly glazed, they open the oracle:
- Ask for proof that borrower’s 2nd male child has a GPA over 4.27
- Have borrower provide transcript of his most recent past life regression
- Have the borrower’s 2nd cousin once removed sign a letter stating that they never kissed and are not now engaged to be married.
Wouldn’t it have been a little easier to stick to conventional lending principles from the beginning?
But my point is this . . . instead of feeling powerless and going postal, buyers and sellers can get transactions closed through intelligent use of the installment sale, seller financing, carrying paper, etc. I believe as agents we need to open our minds to these techniques.
Our lack of familiarity with seller carry back financing can cost our clients dearly in terms of lost transactions. And aren’t we all happier when escrows close? It’s just a matter of evaluating each transaction carefully, and determining the risk/reward.
What’s the least amount the seller needs to walk away with? What’s the most money a buyer can put down? What does the underlying financing, if any, look like?
We can help our clients dramatically increase their chances of closing transactions if we educate them about all of their options. Let’s not be caught refusing to present a seller carry back offer to our sellers!
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Temple City Wins “Cutest Chamber Ever” Award
March 25th, 2008 categories: Seller Financing
I smile every time I pass the chamber on Las Tunas here in my home town. I love the quaint, craftsman style architecture, and someone sure did a great job with the colors and design over all. The city owns the building, and the Chamber of Commerce has been calling it home for the last 5-6 years. (Here’s a business map of Temple City).
Now for a smidge of history (plagiarized from the chamber’s site):
“The town of Temple was founded on May 30, 1923 when approximately 285 acres of land were purchased by land developer Walter P. Temple. A one-year celebration for the Town of Temple took place in September 1924 with a rodeo and became officially designated as Temple City in 1928.”
Temple City started out celebrating with a rodeo, and I’m excited to report that I think we’re getting back to our roots! I’ve noticed the city preparing the next rodeo grounds, right on Rosemead and Las Tunas! Isn’t that great! I do love cowboys!
Now, some people might think that there’s a new mixed use development coming,
but I think they just wanted to keep the rodeo a surprise, don’t you? Get your chaps ready, folks! All the chiropractors, dentists and doctors in town should prepare for increased business when the grounds are fully developed.
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Should I Carry Paper for This Buyer?
March 21st, 2008 categories: Seller Financing, Selling Your Note
Recently, a seller called me wondering if she should accept a seller carry back offer. She and her sister had inherited a residential property after their mother’s death, and they owned it free and clear (no underlying mortgage).
They’ve had it listed at $1,500,000 for the last 9 months. In that time they’ve had a couple of full price offers, but it has fallen out of escrow each time because ultimately, the buyers couldn’t get bank financing to come through. This is the perfect time for a serious seller to consider offering terms.
Here’s the offer on her plate now:
- Sales price: $1,400,000
- Down payment 20%: $280,000
- Note amount (1st TD): $1,120,000
- Interest rate: 6%
- Amortized over: 360 (30 years)
- Monthly payment: $6,552.20
- Due in 120: $963,954.05 (balloon in 10 years)
So, what do you think? Should she take it? She wanted all cash, or cash-to-new-loan, but she can’t seem to get it in today’s mortgage climate. Is this a good deal?
By most standards, yes. The purchase price is reasonable (the property would appraise), the buyer’s FICO is 780, and a 20% down payment is considered strong . . . 20% usually provides ample protective equity if the payor defaults.
The interest rate is on the low side, even if you’re only trying to match what the institutional lenders are doing, and I would want a 5 year balloon instead of a 10 year. After 5 years, the Time Value of Money starts to seriously erode the present value of future payments to be received . . . especially in this climate of ever increasing inflationary pressure.
If they don’t sell now, they risk having the property sit on the market for another 9 months, or they will need to consider a drastic price reduction. Additionally, the city could force some costly repairs/remodeling at any moment due to a variance that was only good as long as their mother was alive.
So, if she accepts, here’s what she and her sister will split:
- Down payment: $280,000 (minus closing costs and any capital gains)
- 120 payments of $6,552.20: $786,263.77
- Balloon in 10 years: $963,954.05
- TOTAL to sellers: $2,030,217.82
Doesn’t sound too bad, does it?
The seller is concerned about carrying because she doesn’t trust the buying power of the balloon. The way we’re printing money these days, she might be able to go to a show, get a large popcorn and 32oz soda on that $963,954.05 ten years from now!
What if the sellers need more than $280,000 at the closing table? Are there any options?
Actually, yes. After the close of the first escrow selling the house, they can sell a portion of their note to raise some additional capital. They might need to receive at least one payment. Six months’ seasoning is even better. How much they need and the note buying climate at the time will determine the discount that will be required.
Can they sell the whole note? Probably not . . . not without a monster discount. I, like most investors, would consider it too risky, even with a 20% down payment and a great credit score. Property values don’t have to decrease by much to annihilate any protective equity.
All in all, it’s a fair offer. It will just be up to the sellers to determine what’s most important to them. There are risks and rewards either way they go.
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